Are ICANN's Accounting Practices Sound?
An accountant's note to a recent ICANN financial report raises questions about the soundness of both the organization's finances and their accounting practices. The Certified Public Accounting firm of Bremer & Hockenberg that prepared the unaudited financial report, 6-Month Financial Report for Period Ending 31 December 2003 and 2002, highlights a potentially significant divergence between ICANN's accounting policies and their practices.

In a Note to the financial report and in the cover letter for the report, the CPA firm states that ICANN has not adhered to their own accounting policy for unpaid invoices. Specifically, Note C to the report explains that "it is the policy of the Company to establish a reserve for all invoices that remain unpaid for more than 180 days." [emphasis added]. The Note goes on to state, "Management has deemed it appropriate to make an exception to this policy for accounts totaling $1,211,000 and $676,000 as of December 21, 2003 and 2002, respectively. Written agreements have not yet been obtained from the name and address registry operators from whom these balances are due."

The cover letter to the financial report further clarifies the impact of the divergence between ICANN's accounting policies and practices by stating, "Had a reserve been established in accordance with the stated policy, the net assets in the accompanying financial statements would have been reduced by approximately $1,211,000 and $676,000 as of December 21, 2003 and 2002, respectively."

The impact of the deviance between accounting policy and practice is non-trivial. If ICANN had followed their own accounting policies, ICANN's net assets would have been reduced by over 22% in 2002 and just over 32% in 2003. It is clear that the impact of the decision by ICANN's management to deviate from their own accounting policies is significant and growing. What is not clear is why ICANN selectively refuses to adhere to their own stated accounting policies of establishing a reserve for aged past due receivables, even though there appears to be no legal agreements requiring the funds be paid.

Ensuring the financial stability of the organization entrusted with internet governance is an important national policy objective that is formalized in the MOU between the Department of Commerce and ICANN. Given the revelations from ICANN's CPA firm, enhanced government oversight of the organization is clearly needed.